Venezuela Sees Iran, Syria To The Rescue

A follower of President Nicolas Maduro runs past a line of soldiers in Caracas, Venezuela, Saturday, Aug. 26, 2017. Ricardo Mazalan AP

Facing potentially debilitating oil sanctions from the Trump administration, the Caracas government is searching desperately for new ways to get its most valuable commodity — oil — to awaiting buyers.

Enter Iran and Syria.

The Venezuelan government is working with Iran and Syria to start construction this year on a new refinery in Syria that will process up to 140,000 barrels of oil per day, according to an announcement by Iran’s Research Institute of the Petroleum Industry.

The international venture is seen as the latest effort by Venezuelan President Nicolás Maduro to build international relationships in the wake of U.S. economic sanctions that have largely blocked the South American country from getting its hands on needed capital during a severe economic and humanitarian crisis.

Venezuela is suffering from food and medicine shortages and massive inflation despite having the world’s largest oil reserves.

If the project is successful, Venezuela could potentially get its oil to the open market by bypassing the U.S.-based refineries that it currently depends on to process roughly 700,000 barrels per day of its heavy crude oil.

But those familiar with U.S. thinking on Venezuelan sanctions question whether Caracas has the money to invest in such a risky endeavor in the war-torn Middle Eastern country. They’ve also heard such ambitious announcements before.

“At the worst, this is the ultimate ‘fake news’ and, at best, wishful thinking,” said Russ Dallen, a managing partner at the investment bank Caracas Capital Markets, who has advised U.S. officials on Venezuelan matters.

The Trump administration has promised to continue ratcheting up the pressure on Caracas until the Venezuelan government restores some democratic institutions. Venezuela couldn’t entirely escape U.S. sanctions anyway. One economic sanctions expert who is familiar with the U.S. thinking said it wouldn’t be difficult to write a new executive order or amend the current executive order to block the sale of any products produced out of the refinery, similar to the sanctions imposed against Iran.

“We know how this playbook works,” said a sanctions expert familiar with the deliberations inside the Trump administration. “It’s not something we haven’t tried before.”

Under such sanctions, those behind the refinery or its products could be prohibited from accessing the U.S. financial system or markets. They could also be subject to “secondary sanctions” that prohibit foreign companies from working with the refinery or risk being blocked from U.S. markets.

“There are ways the U.S. can target this activity,” the sanctions expert said.

Ryan Crocker, who served as a U.S. ambassador in the Middle East, said he couldn’t imagine any company in the world that would consider accepting a contract to build a refinery in a war zone. He sees this as a geopolitical statement against the United States from three major adversaries.

“It’s a political gambit to indicate that they’re not isolated,” said Crocker, who served in Afghanistan, Iraq, Pakistan and Syria. “We are.”

Leaders of Venezuela have inked similar deals with Iran and other nations. It’s often an attempt to show strength and distract from the current domestic crisis. It’s a trick Maduro learned from his mentor, former president and Venezuelan icon Hugo Chavez, said Ahmad Khalid Majidyar, who formerly taught U.S. and NATO military leaders on Middle East issues for the Naval Postgraduate School’s Leader Development and Education for Sustained Peace program.

“At the same time Venezuela is going bankrupt, he’s trying to show ‘we have influence in a far away place like Syria,’” said Majidyar, who is director of a project called IranObserved at the Middle East Institute.

At the worst this is the ultimate ‘fake news’ – and at best ‘wishful thinking’
Russ Dallen, Caracas Capital Markets

In 2008, Venezuela signed an agreement with Iran and Malaysia to build an oil refinery in Syria. Venezuela was set to reap 33 percent of the profits, aligning with its portion of the refinery’s funding.

In 2005, Chavez agreed to finance the construction of a new refinery in Brazil, but later backed out of the deal.

“Certainly the Maduro administration may be trying to demonstrate that Venezuela is still a player in the global energy space,” said Patrick Duddy, the last accredited U.S. ambassador in Venezuela. “They may also be trying to demonstrate that, despite their difficulties with the U.S., they have other avenues to explore and are trying to reverse the country’s economic decline. But the situation on the ground in Venezuela is very bad by any measure.”

In the past, international deals struck between Iran and Venezuela were for Tehran’s benefit, to subvert international sanctions on the Islamic Republic. They usually involved projects in the South American country.

“When it comes to Venezuela and Iran, joint ventures were used during the period of 2006 to 2013 mainly by the Iranian regime to launder money through Venezuela. So it is possible that a joint venture is now going to be used in the opposite direction to facilitate Venezuela’s access to hard cash,” said Emanuele Ottolenghi, senior fellow at the Foundation for the Defense of Democracies.

Cultural ties also facilitate such agreements between Venezuela and Middle Eastern countries at odds with the West: A large group of Syrians migrated to Venezuela in the 1950s during an oil boom in the South American country, establishing the community that now numbers about 400,000 people.

Many Syrian Venezuelans have served in top positions in government, such as the Venezuela’s vice president, Tareck El Aissami, who is of Syrian and Lebanese descent.

The United States government sanctioned El Aissami, who has a vast network of contacts throughout Lebanon, Syria and Iran, after accusing him of drug trafficking and money laundering.

“The financial aspects of it don’t make a lot of sense,” Dallen said. “There has got to be other incentives to make this a worthwhile project for Venezuela right now when it doesn’t have any cash.”